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Utes under scrutiny as ATO issues new guidelines on fringe benefits tax

Utes under scrutiny as ATO issues new guidelines on fringe benefits tax

Posted by LNA Master Landscapers Association
on 25 July 2018

The Australian Taxation Office (ATO) has released new guidelines for fringe benefits tax (FBT) on work vehicles and experts are warning small to medium-sized business owners to reconsider how they use company cars or cars provided to employees as perks.

Fringe benefits tax is a tax paid by employers on various benefits provided to employees and their families as part of their working arrangements, acting as a way to entice workers by placing the tax liability on the business rather than the employee. It's commonly used for things such as company vehicles, mobile phones, laptops, and protective clothing.

Businesses can then claim an FBT exemption for some of those items. For example, FBT exemption is commonly claimed for work vehicles provided that the vehicle is designed to carry less than a tonne and its private use by the employee is limited to travel between home and work, incidental work-related travel, or "minor, infrequent and irregular" non-work related use.

Prior to earlier this year, the ATO had not specified what that "minor, infrequent and irregular" use was categorised as, however, after a consultation period, it has now provided tax agents and business owners with clear guidance on the topic.

Employees are now allowed up to 1,000 kilometres of private travel in company cars per year as long as no single return journey exceeds 200 kilometres, according to Fairfax. The guidelines apply to the 2019 FBT year and onwards.

These new guidelines, coupled with the ATO's enhanced data matching capabilities and renewed focus on work-related expenses has led to tax agents warning businesses to be wary about what company cars they buy, and how they let employees use them.

The ATO's new guidelines are not a change in tax law or rules, they provide clarity on an issue that was previously fuzzy. It was always around 'minor and infrequent use. Now the ATO have provided this clarity and that means utes are now falling into the FBT tax net.

Those utes include popular double-duty cars such as Toyota Hi-Luxes or Ford Rangers, which have carrying capacities under a tonne and dual cabs, conveniently acting as both effective work and family vehicles, sneaking under the FBT exemption threshold and able to ferry around a family of five. This could be even worse for business owners who buy ritzy cars on the company dime with the intention of claiming back GST.

But with the new guidelines, employees who have been previously been using these vehicles for "minor and infrequent" private travel will now have to be vigilant in the amount they use them over the course of a year, as the penalties for businesses otherwise could be significant. If you have not been keeping log books there is a 20% of the cost of the vehicle tax business will suddenly have to pay.

This means a nice new Toyota Hi-lux purchased with the intention of claiming an FBT exemption at $54,440 will leave the business liable for a $10,888 tax bill. This may be worse for business owners who buy ritzy cars on the company dime with the intention of claiming back GST.

Business owners who will be most affected by this are those who have their own vehicle purchased under the business for their own use, as that's likely where the majority of "minor and infrequent" private use is done.